EU Weighs Scaling Back ESG Reporting Amid Economic and Political Pressure

BRUSSELS, Belgium, 21 January 2025 – The European Union is facing growing calls to reduce its ambitious Corporate Sustainability ​Directive (CSRD), together with France and Germany, the main efforts ​to reduce compliance burdens in companies. The CSDD, which requires detailed information on the environment, society and ​governance (ESG), is examined for its perceived impact on economic competition and administrative constraints.

France proposes revisions to CSRD

France is ​preparing to propose amendments ​to the CSDD to limit its scope and reduce requirements for small businesses. Depending on who knows the ​issue, the recommendations can be revealed this week. Robert Ophele, President of the French Accounting Standards Authority, expressed the need to harmonize trade obligations ​with economic realities. It ​proposes to reduce the compliance burden for businesses with fewer than 1,000 employees while maintaining broader deadlines for larger companies.

Germany, which has already experienced two ​consecutive years of economic contraction, also ​calls for significant changes. ​Entrepreneurs and policymakers argue that strict standards undermine ​the country’s economic competitiveness. In a letter addressed to the ​European Commission, ​German ​officials presented proposals to delay ​compliance of small and medium-sized enterprises (SMEs) within two years and to eliminate sectoral reporting requirements.

The current ​scope of the CSDD

Introduced in 2022, the CSDD ​expands the EU Non-Financial Information Directive (NFRD) by significantly increasing the number of companies required to disclose ESG data. The directive concerns about 50 000 enterprises, compared with 12 000 under ​the NFRD. Reporting obligations include environmental impact measures, human ​rights, social standards and sustainability risks.

The progressive implementation of the CSDD began in 2024, with large ​public interest companies employing more than 500 employees reporting first. Small businesses, ​including those ​with at least 250 employees or 50 million euros of income, will be set at 2026. Listed ​SMEs will start reporting in 2027, while non-EU companies with revenues in excess of EUR 150 million are expected to ​meet in 2029.

The sectoral reporting standards, originally established for adoption in 2024, ​were ​extended to 2026 to allow ​companies to focus on initial compliance. These requirements have since been the subject of further ​opposition, with German officials calling for their complete elimination.

Germany’s Pressure for Simplified Regulation

In ​an interview with the German newspaper Börsen-Zeitung, Federal Finance ​Minister Jörg Kukies detailed Germany’s proposals to reduce the ​CSRD’s compliance burden. The plan envisages raising the ​employee threshold for reporting requirements, which could exclude many SMEs from the ​scope of ​the Directive. Kukies stressed the need for a more effective reporting system, noting that companies ​in Germany could face more than 1,000 data points to report ​according to current standards.

Kukies also highlighted overlapping obligations for other regulators, such as the European ​Banking Authority’s ESG requirements for banks. She ​called for ​greater synchronization of reporting regimes to avoid duplication, stressing the importance of a unified and simplified sustainability framework.

“The different reporting regimes must be synchronized so that each ​data point is reported ​only once. Each CFO could tell absurd stories about how the same data should be reported several times. We need more fundamental regulations and less micro-management,” said ​Mr. Kukies.

Wider implications for the rules of procedure of the Working Party

The CSRD’s criticism reflects broader tensions surrounding ESG regulations both within and outside the EU. In ​the United States, legislators have ​described the directive as an example ​of regulatory scope. Meanwhile, President Donald Trump’s administration has committed itself to reversing Biden’s climate policies and imposing tariffs ​on Europe’s major ally products, further complicating international alignment in sustainability initiatives.

The former President of the European Central Bank, Mario Draghi, also criticized the CSDD as a factor in Europe’s economic ​backwardness behind the ​United States. In ​response, the President of ​the European Commission, Ursula von der Leyen, undertook to reduce the administrative burden ​of information by 35%, indicating a willingness ​to respond to ​the ​concerns of Member States and businesses.

The debate on the scope of ​the CSDD also delayed progress on reporting ​requirements only on the impact of the GSCs on non-European companies. Initially planned for 2029, these rules remain a contentious issue because the parties concerned ​weigh on their overall ​applicability.

The ​road ahead

The European Commission is currently considering ​many proposals for inclusion in a comprehensive legislative package, and discussions are expected to continue until 26 February. The main considerations include adjusting ​reporting thresholds, delaying deadlines and limiting sectoral needs. A Commission spokesman confirmed that the ongoing ​discussions would shape the final framework, ​but refused to comment on specific details.

The outcome of these ​negotiations will have important implications for the EU’s sustainable development agenda. As Europe seeks to balance environmental ​ambitions with economic realities, ​the evolution of ​the CSDD will serve as a ​critical test for the bloc’s ability to implement effective and fair ESG regulations.